PayPals Major Flaw Bank Transfers and Bad Design

I shop on eBay about once a month and normally pay with PayPal in the last 6 years making and receiving thousands of transactions, using PayPal I have had a few small issues but nothing that could not be cleared up by a phone call. But my last experience with PayPal will change the way I look at that company, and may influence the ways I purchase online in the future.

On Dec 22 2009 I had purchased a 1.75 shackles & spacer lift for my jeep cherokee, during checkout I wanted to use a new credit card. So like most people would do I clicked on alternate payment sources, and entered my cards information, and then hit save and submit. Little did I know that once I hit the submit button all hell would break lose

To my knowledge the transaction worked as planned the next day my credit card showed a pending charge from PayPal, but it was for only $1. At this point I still thought it was working as I see a $1 charge all the time as merchants use that to authorize the card.

About four days later I get an email from my bank that I have been overdrawn and has over $100 in NSF fees, this is when I discovered PayPal made a big mistake.

I logged  into my PayPal account and reviewed the transaction and sure enough it says instant bank transfer, but then why would they be charging $1 to my credit card? I thought it was time to call PayPal and get to the bottom of this mess.

Calling PayPal was a challenge, it asks for a code that I did not have, but after screaming operator and pressing 0 multiple times I got a person that was able to help me. After about 5 minutes on hold I was told that I had not selected the credit card as the payment source, I responded by asking if I had not selected it why is was $1 charged? Again I was put on hold and this time got a more real answer  from the representative  after adding a new credit card you must wait 1 to 5 minutes before using that payment method and you clicked submit order only 15 seconds after adding the card, so our system used the payment on file, our system must validate the card is not stolen and that it is valid. As a web developer I have worked on and managed many online shopping and payment systems, one of the tasks is to make sure it verifies payment and then charges the payment, if it cant charge it the transaction will fail.

I then asked if they can see what payment method I selected and the response was Our system does not keep that information, a payment processing system the size of PayPal does not store the payment method the user selects!?

I find this a huge flaw in the PayPal system, one large enough that I will not be using PayPal in the near future.

But what to do about the NSF fees and the fact that they took the money out of the wrong account, I ask PayPal what they will do about it and they said you will have to contact your banking institution basically saying that they are not the ones that messed up and that I am out of luck.

Well little did they know I dealt with issues like this before and know that the bank will always side with the customer, I decided the way PayPal handled this required action. I called my bank and said this transaction was not authorized and that I would like to put a stop hold on all PayPal transactions.

This is where it gets tricky, if I had wanted to use my bank account for the purchase I legally would not be able to do what I did as it would be perjury. But because  I had wanted and tried to use the credit card this bank charge was technically unauthorized.

I tell the bank the story and after only 5 minutes on the phone I get a Stop Payment order, and they are doing an investigation for the ACH withdraw she says it will take ten days to complete and I will get the NSF fees back like nothing happened.

Ten days later I logged into my bank and the money was returned to me along with the fees, so now that I got my money back the seller is probably wondering where his money is. This seller is a company and takes credit cards so i give him a call and explain the story and then make the payment over the phone, and we both hang up on a good note.

But this leaves me wondering how safe PayPal really is, I easily got my money back from a bank transfer and put a permanent block on PayPal transactions. What is stopping people from buying using PayPal and then taking the money back and disappearing? I actually found the whole process faster and easier then doing a credit card dispute.

In my mind this is a major flaw in PayPal system and makes me wonder how safe my money is when I sell on eBay. What do you think about this PayPal issue?

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